KUALA LUMPUR- Palm oil giant FGV Holdings said migrant workers should start arriving by end-March 2022 in Malaysia to ease a labour shortage and reverse a slump in output, provided the Omicron coronavirus variant does not disrupt plans.

In the world's second largest palm oil producer, border closures and a ban on the entry of migrant workers since last year have exacerbated a labour shortage in plantations - where 78% of workers are from countries such as Bangladesh, India and Indonesia.

The government said in September it would prioritise ensuring the return of 32,000 workers for the palm oil sector and in October, Malaysia's Human Resources Ministry told Reuters workers  would start arriving at the end of this year. 

FGV Holdings, which is operating at 70% workforce strength, told Reuters additional COVID-19 processes would mean a first batch from a total of 7,000 workers it plans to hire would arrive by the end of the first quarter of 2022, subject to government approval.

"Although the numbers are insufficient to the actual number of shortages, the 7,000 workers are crucial, especially for harvesting," it said in an emailed response to Reuters, adding that any positive impact on production would be seen by the second quarter.

The Malaysian Palm Oil Association (MPOA) estimates the plantation worker shortfall is roughly 75,000, nearly half of which are harvesters needed to pluck the heavy, perishable palm fruit bunches from towering trees.

Malaysia faces a potential production loss of 4.5 million tonnes of crude palm oil in 2021 as a result, MPOA chief executive Nageeb Wahab said.

Palm oil constituted nearly 3.6% of the country's gross domestic product in 2020.

Plantation firms and recruitment agencies have started identifying suitable foreign workers and preparing paperwork, but await guidance from the relevant government agencies in order to arrange travel.

FGV said it has prepared government-approved quarantine centres in Malaysia and in workers' home countries in preparation for incoming recruits.

Workers are expected in time for the peak production season commencing around September 2022, but analysts said plantations will not fully recover immediately.

"Plantation companies went to great lengths to keep harvesting during the peak crop, but the longer harvesting rounds and lack of maintenance, particularly pruning, will take at least six months to rectify," Julian McGill, head of South East Asia at LMC International, said.

The return of workers could help Malaysia's production to recover by 1 million tonnes in 2022, Thomas Mielke, the head of German-based analyst firm Oil World, told a webinar last month.

However, FGV in a press conference on Friday voiced concerns that the Omicron variant may trigger lockdowns in the workers' home countries.

"If those (workers') arrivals do not happen, we would definitely see our operations or level of productivity similar to what we are seeing this year," FGV CEO Mohd Nazrul Izam Mansor said.

(Reporting by Mei Mei Chu; Editing by Ana Nicolaci da Costa and Barbara Lewis) ((meifong.chu@thomsonreuters.com; +603-2333-8005; Reuters Messaging: @meixchu on Twitter))